e-commerce 2013 business technology society

E-commerce
business, technology, society.
GLOBAL EDITION
NINTH E
m
I T I
Kenneth C. Laudon Carol Guercio Traver
New York University Azimuth Interactive, Inc.
PEARSON
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P R E F A C E
WHAT’S NEW IN THE NINTH EDITION
Currency
The 9th edition features all new or updated opening, closing-, and "Insight on" cases.
The text, as well as all of the data, figures, and tables in the book, have been updiited
through October 2012 with the latest marketing and business intelligence available
from eMarketer, Pew Internet & American Life Project, Forrester Research, com-
Score, G artner Research, and other industry sources.
New Themes and Content
The 9th edition spotlights the following them es and content:
Headlines
• Social, Mobile, Local: New content about social networks, the mobile platform,
and local e-commerce appears throughout the book.
» Social networks such as Facebook, Tvitter, and Linkedln continue their rapid
growth, laying the groundwork for a “social e-commerce platform" and contin
ued expansion of social marketing opportunities.
» The mobile Internet platform composed of smartphones and tablet computers
takes off and becomes a major factor in search, marketing, payment, retailing
and services, and online content. Mobile device use poses new security and
privacy issues as well.
» Location-based services lead to explosive growth in local advertising and m ar
keting.
• Online privacy continues to deteriorate, driven by a culture of self-revelation and
powerful technologies for collecting personal inform ation online without the
knowledge or consent of users.
• Internet security risks increase; cyberwarfare becomes a new wa
3
' of conducting

warfare among nation-states and a national security issue.
Business
• E-commerce revenues surge after the recession.
• Internet advertising growth resumes, at a faster rate than traditional advertising.
• Social m arketing/advertising grows faster than search or display advertising.
• E-books take off and expand the market for text, supported by the iPad, Kindle,
Nook, and iPhone.
• Streaming of popular TV shows and movies (Netflix, Amazon, and Hulu.com)
becomes a reality, as Internet distributors and Hollywood and TV producers strike
deals for Web distribution that also protects intellectual property.
• "Free" and “freemium” business models compete to support digital content.
• New mobile payment platforms emerge to challenge PayPal.
• B2B e-commerce exceeds pre-recession levels as firms become more comfortable
with digital supply chains.
Technology
• Smartphones, tablets, and e-book readers, along with associated software applica
tions, and coupled with 3G/4G cellular network expansion, fuel rapid growth of
the mobile platform.
• investment in cloud computing increases, providing the computing infrastructure
for a massive increase in online digital information and e-commerce.
• Cloud-based stream ing services for music and video replace sales of downloads
and physical product.
• Nearly a million software apps fuel growth in app sales, marketing, and advertis
ing; transforming software production and distribution.
• Touch interface operating system s emerge: Windows 8 introduced with a touch
screen interface, mimicking Apple's iOS and Google Android smartphones.
• The cost of developing sophisticated W'eb sites continues to drop due to declining
software and hardware prices and open source software tools.
• Internet and cellular network capacity is challenged by the rapid expansion in
digital traffic generated by mobile devices; bandwidth caps begin to appear in 2012.

• Internet telecom munications carrici's support differential pricing to m aintain a
stiible Internet; opposed by Net neutrality groups pushing non-discriminatory
pricing.
Society
• The mobile, “always on” culture in business and family life continues to grow.
• Congress considers legislation to regulate the use of personal inform ation for
behavioral tracking and targeting consumers online.
• States heat up the pursuit of taxes on Internet sales by Amazon and others.
• Intellectual property issues remain a source of conflict with significant movement
toward resolution in some areas, such as Google's deals with Hollywood and the
publishing industry, and Apple’s and Amazon's deals with e-book and magazine
publishers.
• P2P piracy traffic declines as paid streaming music and video gains ground,
although digital piracy of online content remains a significant threat to Hollywood
and the music industry.
Preface
5
• Governm ents around the world increase surveillance of Internet users and Web
sites in response to national security threats; Google continues to tussle with China
and other countries over censorship and security issues.
• Venture capital investing in e-commerce explodes for social, mobile, and local soft
ware applications in the first half of 2012, and then recedes as social and game
firms lose m arket value.
WELCOME TO THE NEW E-COMMERCE
Since it began in 1995, electronic commerce has grown in the United States from a
standing start to a $362 billion retail, travel, and media business and a $4.1 trillion
business-to-business juggernaut, bringing about enormous change in business firms,
markets, and consumer behavior. Economies and business firms around the globe are
being similarly affected. During this relatively short time, e-commerce has itselfbeen
transform ed from its origin as a mechanism for online retail sales into something

much broader. Today, e-comm erce has becom e the platform for media and new,
unique services and capabilities that aren’t found in the physical world. There is no
physical world counterpart to Facebook, Twittter, Google search, or a host of other
recent online innovations from Groupon and iTunes to Tlimblr. Welcome to the new
e-commerce!
Although e-commerce today has been im pacted by the worldwide economic
recession, in the next five years, e-commerce in all of its forms is still projected to
continue growing at high single-digit rates, becoming the fastest growing form of com
merce. Just as automobiles, airplanes, and electronics defined the twentieth century,
so will e-commerce of all kinds define business and society in the twenty-first cen
tury. The rapid movement toward an e-commerce economy and society is being led
by both established business firms such as Walmart, Ford, IBM, JCPenney, and Gen
eral Electric, and newer entrepreneurial firms such as Google, Amazon, Apple, Face-
book. Yahoo, TWitter, YouTube, and Photobucket. Students ofbusiness and information
technology need a thorough grounding in electronic commerce in order to be effec
tive and successful m anagers in the next decade. This book is written for tomorrow's
managers.
While newer firms such as Facebook, Tumblr, YouTube, Twitter, Pinterest, Flickr,
and Blinkx have grown explosively in the last two years and grab our attention, the
traditional forms of retail e-commerce and services also remain vital and have proven
to be more resilient than traditional retail channels in facing the economic recession
that has occurred during the past year. The experience of these firms from 1995 to the
present is also a focus of this book. The defining characteristic of these firms is that
they are profitable, sustainable, efficient, and innovative, with powerful brand names.
Many of these now-experienced retail and service firms, such as eBay, Amazon,
E*Trade, Priceline, and Expedia, are survivors of the first era of e-commerce, from
1995 to spring 2000. These surviving firms have evolved their business models, inte
grated their online and offline operations, and changed their revenue models to
become profitable. Students must understand howT to build these kinds of e-commerce
6

Preface
businesses in order to help the business firms they m anage to succeed in the e-com-
merce era.
It would be foolish to ignore the lessons learned in the early period of
e-commerce. Like so many technology revolutions in the past—automobiles, elec
tricity, telephones, television, and biotechnology—there was an explosion of entre
preneurial efforts, followed by consolidation. By 2005, the survivors of the early
period were moving to establish profitable businesses while m aintaining rapid
growth in revenues. In 2012, e-commerce is entering a new period of explosive
entrenpreneurial activity focusing on social networks, and the mobile digital plat
form created by sm artphones and tablet computers. These technologies and social
behaviors are bringing about extraordinary changes to our personal lives, markets,
industries, individual businesses, and society as a whole. In 2012, the stock values of
Apple, Google, and Amazon hit new highs, along with m any start-ups. E-commerce
is generating thousands of new jobs for young managers in all fields from marketing
to managem ent, entrepreneurial studies, and information systems. Today, e-com
merce has moved into the mainstream life of established businesses that have the
market brands and financial muscle required for the long-term deploym ent of
e-commerce technologies and methods. If you arc working in an established busi
ness, chances are the firm's e-commerce capabilities and Web presence are impor
tant factors for its success. If you want to start a new business, chances are very good
that the knowledge you learn in this book will be very helpful.
BUSINESS. TECHNOLOGY. SOCIETY.
We believe that in order for business and technology students to really understand
e-commerce, they must understand the relationships among e-commerce business
concerns, Internet technology, and the social and legal context of e-commerce. These
three them es perm eate all aspects of e-commerce, and therefore, in each chapter, we
present material that explores the business, technological, and social aspects of that
chapter's main topic.
Given the continued growth and diffusion of e-commerce, all students—regard

less of their major discipline—must also understand the basic economic and business
forces driving e-commerce. E-commerce has created new electronic m arkets where
prices are more transparent, markets are global, and trading is highly efficient,
though not perfect. E-commerce has a direct impact on a firm’s relationship with sup
pliers, customers, competitors, and partners, as well as how firms market products,
advertise, and use brands. W hether you are interested in marketing and sales, design,
production, finance, information systems, or logistics, you will need to know how
e-commerce technologies can be used to reduce supply chain costs, increase produc
tion efficiency, and tighten the relationship with customers. This text is written to
help you understand the fundamental business issues in e-commerce.
We spend a considerable amount of effort analyzing the business models and
strategies of "pure-play” online companies and established businesses now employing
"bricks-and-clicks" business models. We explore why many early e-commerce firms
fail and the strategic, financial, marketing, and organizational challenges they face.
Preface
7
We also discuss how e-commerce firms learned from the mistakes of early firms, and
how established firms are using e-commerce to succeed. Above all, we attempt to
bring a strong sense of business realism and sensitivity to the often exaggerated
descriptions of e-commerce. As founders of a dot.com company and participants in
the e-commerce revolution, we have learned that the "e" in e-commerce does not
stand for "easy."
The Web and e-comm erce have caused a major revolution in marketing and
advertising in the United States. We spend two chapters discussing how marketing
and advertising dollars are moving away from traditional media, and towards online
media and their huge audiences, creating significant growth in search engine market
ing, targeted display advertising, online rich media/video ads, and social marketing
techniques.
E-commerce is driven by Internet technology. Internet technology, and informa
tion technology in general, is perhaps the star of the show. Without the Internet,

e-commerce would be virtually nonexistent. Accordingly, we provide three chapters
specifically on the Internet and e-commerce technology, and in every chapter we
provide continuing coverage by illustrating how the topic of the chapter is being
shaped by new information technologies. For instance, Internet technology drives
developments in security and paym ent systems, marketing strategies and advertis
ing, financial applications, media distribution, business-to-business trade, and retail
e-commerce. W?e discuss the rapid growth of the mobile digital platform, the em er
gence of cloud computing, new open source software tools and applications that
enable Web 2.0, and new types of Internet-based information systems that support
electronic business-to-business markets.
E-commerce is not only about business and technology, however. The third part
of the equation for understanding e-commerce is society. E-commerce and Internet
technologies have im portant social consequences that business leaders can ignore
only at their peril. E-commerce has challenged our concepts of privacy, intellectual
property, and even our ideas about national sovereignty and governance. Google,
Facebook, Apple, Amazon, and assorted advertising networks m aintain profiles on
millions of shoppers and consumers worldwide. The proliferation of illegally copied
music and videos on the Internet, and the growth of social networking sites often
based on displaying copyrighted materials without permission, are challenging the
intellectual property rights of record labels, Hollywood studios, and artists. And m any
countries—including the United States—are dem anding to control the content of Web
sites displayed within their borders for political and social reasons. Tax authorities in
the United States and Europe are demanding that e-commerce sites pay sales taxes
just like ordinary brick and m ortar stores on mainstreet. As a result of these chal
lenges to existing institutions, e-commerce and the Internet are the subject of increas
ing investigation, litigation, and legislation. Business leaders need to understand
these societal developments, and they cannot afford to assume any longer that the
Internet is borderless, beyond social control and regulation, or a place where m arket
efficiency is the only consideration. In addition to an entire chapter devoted to the
social and legal implications of e-commerce, each chapter contains material high

lighting the social implications of e-commerce.
8
Preface
FEATURES AND COVERAGE
Strong Conceptual Foundation The book em phasizes the three major driving forces
behind e-commerce: business developm ent and strategy, technological innovations,
and social controversies and impacts. Each of these driving forces is represented in
every chapter, and together they provide a strong and coherent conceptual fram e
work for understanding e-commerce. We analyze e-commerce, digital m arkets, and
e-business firms just as we would ordinarj' businesses and markets using concepts
from economics, marketing, finance, sociology, philosophy, and information sys
tems. We strive to maintain a critical perspective on e-commerce and avoid industry
hyperbole.
Some of the important concepts from economics and marketing that we use to
explore e-commerce are transaction cost, network externalities, information asym
metry, social networks, perfect digital markets, segmentation, price dispersion, tar
geting, and positioning. Important concepts from the study of information systems
and technologies play an im portant role in the book, including Internet standards and
protocols, client/server computing, multi-tier server sj^stems, cloud computing,
mobile digital platform and wireless technologies, and public key encryption, among
many others. From the literature on ethics and society, we use important concepts
such as intellectual property, privacy, information rights and rights managem ent,
governance, public health, and welfare.
From the literature on business, we use concepts such as business process design,
return on investm ent, strategic advantage, industry competitive environment, oli
gopoly, and monopoly. We also provide a basic understanding of finance and account
ing issues, and extend this through an “E-commerce in Action" ease that critically
examines the financial statements of Amazon. One of the witticisms that emerged
from the early years of e-commerce and that still seems apt is the notion that e-com
merce changes everything except the rules of business. Businesses still need to make

a profit in order to survive in the long term.
Currency Important newr developments happen almost every day in e-commerce and
the Internet. We try to capture as many of these im portant new developments in each
annual edition. You will not find a more current book for a course offered during the
2013 academic year. Many other texts are already six m onths to a year out of date
before they even reach the printer. This text, in contrast, reflects extensive research
through October 2012, just weeks before the book hits the press.
Real-World Business Firm Focus and Cases From Akamai Technologies to Google,
Microsoft, Apple, and Amazon, to Facebook, Twitter, and Tumblr, to Netfiix, Pandora,
and Elemica, this book contains hundreds of real-company examples and over 60
more extensive cases that place coverage in the context of actual dot.com businesses.
You’ll find these examples in each chapter, as well as in special features such as
chapter-opening, chapter-closing, and “Insight on” cases. The book takes a realistic
look at the world of e-commerce, describing what's working and what isn’t, rather
than presenting a rose-colored or purely "academic” viewpoint.
Preface
In-depth Coverage of Marketing and Advertising The text includes two chapters on
marketing and advertising. Marketing concepts, including social, mobile, and local
marketing, market segmentation, personalization, clickstream analysis, bundling of
digital goods, long-tail marketing, and dynamic pricing, are used throughout the text.
In-depth Coverage of B2B E-commerce We devote an entire chapter to an examina
tion of B2B e-commerce. In writing this chapter, we developed a unique and easily
understood classification schema to help students understand this complex arena of
e-commerce. This chapter covers four types of Net marketplaces (e-distributors,
e-procurem ent companies, exchanges, and industry consortia) as well as the develop
m ent of private industrial networks and collaborative commerce.
Current and Future Technology Coverage Internet and related information technolo
gies continue to change rapidly. The most important changes for e-commerce include
dramatic price reductions in e-commerce infrastructure (making it much less expen
sive to develop sophisticated Web sites), the explosive growth in the mobile platform

such as iPhones, iPads, tablet computers, and expansion in the development of social
technologies, which are the foundation of online social networks. What was once a
shortage of telecom munications capacity has now turned into a surplus, PC prices
have continued to fall, sm artphone and tablet sales have soared, Internet high-speed
broadband connections are now typical and are continuing to show double-digit
growth, and wireless technologies such as Wi-Fi and cellular broadband are trans
forming how, when, and where people access the Internet. WTiile we thoroughly
discuss the current Internet environm ent, we devote considerable attention to
describing Web 2.0 and emerging technologies and applications such as the advanced
network infrastructure, fiber optics, wireless Wreb and 4G technologies, Wi-Fi, IP mul
ticasting, and future guaranteed service levels.
Up-to-Date Coverage of the Research Literature This text is well grounded in the
e-commcrce research literature. We have sought to include, where appropriate, refer
ences and analysis of the latest e-commerce research findings, as well as many classic
articles, in all of our chapters. WTe have drawn especially on the disciplines of eco
nomics, marketing, and information systems and technologies, as well as law jour
nals and broader social science research journals including sociolog\r and psychology.
We do not use references to Wikipedia in this text, for a variety of reasons. Most
colleges do not consider Wikipedia a legitimate or acceptable source for academic
research and instruct their students not to cite it. Material found on Wikipedia may
be out of date, lack coverage, lack critical perspective, and cannot necessarily be
trusted. Our references are to respected academic journals; industry sources such as
eMarketer, comScore, Hitwise, Nielsen, and Gartner; newspapers such as the New
York Times and Wall Street Journal; and industry publications such as Computerworld
and InfonnationWeek, among others. Figures and tables sourced to "authors' estimates"
reflect analysis of data from the U.S. Departm ent of Commerce, estimates from vari
ous research firms, historical trends, revenues of major online retailers, consum er
online buying trends, and economic conditions.
10
Preface

Special Attention to the Social and Legal Aspects of E-commerce We have paid special
attention throughout the book to the social and legal context of e-commerce. Chapter
8 is devoted to a thorough exploration of four ethical dimensions of e-commerce:
information privacy, intellectual property, governance, and protecting public welfare
on the Internet. We have included an analysis of the latest Federal Trade Commission
and other regulatory and nonprofit research reports, and their likely impact on the
e-commerce environment.
A major theme through out this chapter, and the rem ainder of the book, is the
impact of social, mobile, and local commerce on how consumers use the Internet.
Writing That's Fun to Read Unlike some textbooks, we've been told bv m any students
that this book is actually fun to read and easy to understand. This is not a book writ
ten by com m ittee—you won't find a dozen different people listed as authors, co
authors, and contributors on the title page. We have a consistent voice and perspective
that carries through the entire text and we believe the book is the better for it.
OVERVIEW OF THE BOOK
The book begins with an introductory chapter that provides an introduction to the
major them es of the book. Chapter 1 defines e-commerce, distinguishes between
e-commerce and e-business, and defines the different types of e-commerce. Chapter
2 traces the historical developm ent of the Internet and thoroughly describes how
today’s Internet works. A major focus of this chapter is mobile technology, Web 2.0
applications, and the near-term future Internet that is now under developm ent and
will shape the future of e-commerce. Chapter 3 builds on the Internet chapter by
focusing on the steps managers need to follow in order to build an e-commerce pres
ence. This e-commerce infrastructure chapter covers the steps involved in develop
ing an e-commerce presence; the system s analysis and design process that should be
followed; the major decisions regarding outsourcing site development and /or host
ing; and how to choose software, hardware, and other tools that can improve Web site
performance. Chapter 4 focuses on Internet security and payments, building on the
e-commerce infrastructure discussion of the previous chapter by describing the ways
security can be provided over the Internet. The chapter defines digital information

security, describes the major threats to security, and then discusses both the technol
ogy and policy solutions available to business managers seeking to secure their firm's
sites. This chapter concludes with a section on Internet paym ent systems. We iden
tify the stakeholders in paym ent systems and the various types of online paym ent
systems (credit cards, alternative online payment systems such as PayPal and Google
Wallet), and the developm ent of mobile paym ent systems.
The next four chapters focus directly on the business concepts and social-legal
issues that surround the developm ent of e-commerce. Chapter 5 introduces and
defines the concepts of business model and revenue model, describes the major
e-commerce business and revenue models for both B2C and B2B firms, and intro
duces the basic business concepts required throughout the text for understanding
e-comm erce firms including industry structure, value chains, and firm strategy.
Preface
11
Chapter 6 focuses on e-commerce consum er behavior, the Internet audience, and
introduces the student to the basics of online marketing and branding, including
online m arketing technologies and m arketing strategies. The use of social networks
and social marketing campaigns to create and sustain brands is also discussed. Chap
ter 7 is devoted to online marketing com munications, such as display advertising,
social network marketing, mobile marketing, e-mail marketing, and search-engine
marketing. Chapter 8 provides a thorough introduction to the social and legal envi
ronm ent of e-commerce. Here, you will find a description of the ethical and legal
dimensions of e-commerce, including a thorough discussion of the latest develop
ments in personal information privacy, intellectual property, Internet governance,
jurisdiction, and public health and welfare issues such as pornography, gambling, and
health information.
The final four chapters focus on real-world e-commerce experiences in retail and
services, online media, auctions, portals, and social networks, and business-to-busi-
ness e-commerce. These chapters take a sector approach rather than a conceptual
approach as used in the earlier chapters. E-commerce is different in each of these

sectors. Chapter 9 explores the world of online content and digital media, and exam
ines the enorm ous changes in online publishing and entertainm ent industries that
have occurred over the last two
3
rears, including streaming movies, e-books, and
online newspapers and magazines. Chapter 10 explores the online world of social
networks, auctions, and portals. Chapter 11 takes a close look at the experience of
firms in the retail marketplace for both goods and services. Chapter 11 also includes
an "E-commerce in Action" case that provides a detailed analysis of the business strat
egies and financial operating results of Amazon, which can be used as a model to
analyze other e-commerce firms. Additional “E-commerce in Action" cases will be
available online at the authors' Web site for the text, www.azimuth-interactive.com /
ec.ommerce9e. Chapter 12 explores the world of B2B e-commerce, describing both
electronic Net marketplaces and the less-heralded, but very large arena of private
industrial networks and the m ovement toward collaborative commerce.
PEDAGOGY AND CHAPTER OUTLINE
The book's pedagogy emphasizes student cognitive awareness and the ability to ana
lyze, synthesize, and evaluate e-commerce businesses. While there is a strong data
and conceptual foundation to the book, we seek to engage student interest with lively
writing about e-commerce businesses and the transform ation of business models at
traditional firms.
12 Preface
Each chaptcr contains a num ber of elements designed to m ake learning easy as
well as interesting.
Learning Objectives A list of learning objectives that highlights the key concepts in
the chapter guides student study.
Chapter-Opening Cases Each chapter opens with a story about a leading e-commerce
company that relates the key objectives of the chapter to a real-life e-commerce busi
ness venture. A num ber of the chapter-opening cases focus specifically on global
aspects of e-commerce and com panies with a m ajor presence in Europe, the Middle

East, Africa, Asia and/or Australia.
Preface
13
PRIVACY
''Insight on" Cases Each chap
ter contains three real-world
cases illustrating the them es of
technology, business, and soci
ety. These cases take an in-
depth look at relevant topics to
help describe and analyze the
full breadth of the field of
e-commerce. The cases probe
such issues as the ability of
gov ernm ents to regulate
Internet content, how to
design Web sites for accessi
bility, the challenges faced
by luxury m arketers in
online m arketing, and
smartphone security.
Margin Glossary Through
out the text, key term s and
their definitions appear in
the text margin where
they are first introduced.
Real-Company Examples Drawn
from actual e-commerce ven
tures, well over 100 pertinent
examples are used throughout

the text to illustrate concepts.
REAL m«"
14
Preface
hapter-Closing Case Studies Each chap
ter concludes with a robust case study
based on a real-world organization.
These cases help students synthesize
chapter concepts and apply this
knowledge to concrete problems and
scenarios such as evaluating Pan
dora’s freemium business model,
ExchangeHunte r J
11
m pe r's e fforts
to build a brand, and the fairness
of the Google Books settlement.
Chapter-Ending Pedagogy
Each chapter contains exten
sive end-of-chapter m aterials
designed to reinforce the
learning objectives of the
chapter.
Key Concepts Keyed to the
learning objectives, Key Con
cepts present the key points of
the chapter to aid student
study.
Review Questions Thought-provoking ques
tions prompt students to dem onstrate their com prehen

sion and apply chapter concepts to management problem solving.
Projects At the end of each chapter arc a num ber of projects that encourage
students to apply chapter concepts and to use higher level evaluation skills.
Many make use of the Internet and require students to present their findings in
an oral or electronic presentation or written report. For instance, students are
asked to evaluate publicly available information about a com pany’s financials
at the SEC Web site, assess payment system options for companies across inter
national boundaries, or search for the top 10 cookies on their own com puter
and the sites they are from.
Web Resources Web resources that can extend students’ knowledge of each
chapter with projects, exercises, and additional content are available at www.
azimuth-interactive.com/ecomm erce9e. The Web site contains the following
content provided by the authors:
• Additional projects, exercises, and tutorials
• Information on how to build a business plan and revenue models
• Essays on careers in e-commerce
SUPPORT PACKAGE
The following supplem entary materials are av¿iilable to qualified instructors through
the Online Instructor Resource Center. Contact vour Pearson Education sales repre
sentative for inform ation about how to access them.
• Instructor's Manual with solutions This comprehensive m anual pulls together
a wide variety of teaching tools so that instructors can use the text easily and effec
tively. Each chapter contains an overview of key topics, a recap of the key learning
objectives, additional topics for class discussion and debate, lccturc tips, discussion
of the chapter-ending case, and answers to the Case study Questions, Review
Questions, and student Projects.
• Test Bank For quick test preparation, the author-created Test Bank contains mul
tiple-choice, true/false, and short-essav questions that focus both on content and
the developm ent of critical/creative thinking about the issues evoked by the chap
ter. The Test Bank is available in Microsoft Word and TtestGen format.TestGen

allows instructors to view, edit, and add questions.
• PowerPoint lecture presentation slides These slides illustrate key points,
tables, and figures from the text in lecture-note format. The slides can be easily
converted to transparencies or viewed electronically in the classroom. The slides
also include additional questions for the opening cases and the "Insight on"
vignettes throughout the book. These questions are very useful for in-class discus
sions, or quizzes.
• Learning Tracks These additional essays, created bv the authors, provide instruc
tors and students with more in-depth content on selected topics in e-commerce.
• Video Cases The authors have created a collection of video case studies that inte
grate short videos, supporting case stucty m aterial, and case study questions.
Video cases can he used in class to promote discussion or as written assignments.
ACKNOWLEDGMENTS
Pearson Education sought the advice of many excellent reviewers, all of whom
strongly influenced the organization and substance of this book. The following indi
viduals provided extremely useful evaluations of this and previous editions of the
text:
Preface I 15
16 Preface
Deniz Aksen, Kog University (Istanbul)
Carrie Andersen, Madison Area
Technical College
Dr. Shirley A. Becker, Northern Arizona
University
Prasad Bingi, Indiana-Purdue
University, Fort Wayne
Christine Barnes, Lakeland Community
College
Cliff Butler, North Seattle Com munity
College

Joanna Broder, University of Arizona
Jam es Buchan, College of the Ozarks
Ashley Bush, Florida State University
Mark Choman, Luzerne City
Community College
Andrew Ciganek, Jacksonville State
University
Daniel Connolly, University of Denver
Tbm Critzcr, Miami University
Dursan Delen, Oklahoma State
University
Abhijit Deshmukh, University of
Massachusetts
Brian L. Dos Santos, University of
Louisville
Robert Drevs, University of Notre Dame
Akram El-Tannir, Hariri Canadian
University, Lebanon
Kimberly Furumo, University of Hawaii
at Hilo
John H. Gerdes, University of
California, Riverside
Philip Gordon, University of California
at Berkeley
Allan Greenberg, Brooklyn College
Bin Gu, University of Texas at Austin
Peter Haried, University of Wisconsin-
La Crosse
Sherri Harms, University of Nebraska at
Kearney

Sharon Heckel, St. Charles Comm unity
College
David Hite, Virginia Interm ont College
(jus Jabbour, George Mason University
Ellen Kraft, Georgian Court University
Gilliean Lee, Lander University
Zoonky Lee, University of Nebraska,
Lincoln
Andre Lemaylleux, Boston University,
Brussels
Haim Levkowitz, University of
Massachusetts, Lowell
Yair Levy, Nova Southeastern
University
Richard Lucic, Duke University
John Mendonca, Purdue University
Dr. Abdulrahman Mirza, DePaul
University
Kent Palmer, MacMurray College
Karen Palumbo, University of
St. Francis
Wayne Pauli, Dakota State University
Jamie Pinchot, Thiel College
Kai Pommerenke, University of
California at Santa Cruz
Barry Quinn, University of Ulster,
Northern Ireland
Michelle Ramim, Nova Southeastern
University
Jay Rhee, San Jose State University

Jorge Romero, Tbwson University
John Sagi, Anne Arundel Community
College
Patricia Sendall, Merrimack College
Dr. Carlos Serrao, ISCTE/DCTI,
Portugal
Neerja Sethi, Nanyang Business School,
Singapore
Amber Settle, DePaul CTI
Vivek Shah, Texas State University-San
Marcos
Preface
17
Seung Jae Shin, Mississippi State
University
Sumit Sircar, Universit}' of Texas at
Arlington
Hongjun Song, University of Memphis
Pamela Specht, University of Nebraska
at Omaha
Esther Swilley, Kansas State University
Tony Townsend, Iowa State University
Bill TVoy, University of New Hampshire
Susan VandeVen, Southern Polytechnic
State University
Hiep Van Dong, Madison Area
Technical College
Man* Vitrano, Palm Beach Com munity
College
Andrea Wachter, Point Park University

Catherine Wallace, Massejr University,
New Zealand
Biao Wang, Boston University
Haibo Wang, Texas A&"M International
University
Harry Washington, Lincoln University
Rolf Wigand, University of Arkansas at
Little Rock
Erin Wilkinson, Johnson & Wales
University
Alice Wilson, Cedar Crest College
Dezhi Wu, Southern Utah University
Gene Yelle, SUNY Institute of
Technology
David Zolzer, Northwestern State
University
We would like to thank eMarketer, Inc. and David Iankelevich for their perm ission to
include data and figures from their research reports in our text. eM arketer is one of
the leading independent sources for statistics, trend data, and original analysis cover
ing m any topics related to the Internet, e-business, and emerging technologies. eMar
keter aggregates e-business data from multiple sources worldwide.
In addition, we wrould like to thank all those at Prentice Hall who have worked so
hard to make sure, this book is the very best it can be. We want to thank Bob Horan,
Executive Editor of the Prentice Hall MIS list, and Karalyn Holland, Senior Produc
tion Project Manager, for their support; Judy Leale for overseeing production of this
project; and DePinho Design for the outstanding cover design. Very special thanks to
Robin Pickering, Megan Miller, and Will Anderson at Azimuth Interactive, Inc., for all
their hard work on the production of, and supplem ents for, this book.
A special thanks also to Susan Hartman, Executive Editor for the first and second
editions and to Frank Ruggirello, Publisher at Addison-Wesley when we began this

project, and now Vice President and Editorial Director at Benjamin-Cummings.
Finally, last but not least, we would like to thank our family and friends, without
whose support this book would not have been possible.
Kenneth C. Laudon
Carol Guercio Traver
Brief Contents
n r
INTRODUCTION TO E-COMMERCE
40
2
E-COMM ERCE INFRASTRUCTURE: THE INTERNET, WEB, AND MOBILE PLATFORM 98
3
BUILDING AN E-COMMERCE PRESENCE: WEB SITES, MOBILE SITES, AND APPS
178
D
E-COMMERCE SECU RITY AND PAYMENT SYSTEMS
242
5 BUSIN ESS MODELS FOR E-COMMERCE
320
IB
E-COMMERCE MARKETING
372
LB.
E-COM M ERCE ADVERTISING
460
8
ETHICS, LAW, AND E-COMM ERCE
524
9 ONLINE MEDIA

606
10
SOCIAL NETWORKS AND COMMUNITIES
668
11
E-COMMERCE RETAILING AND SERV ICES
722
12
B2B E-COMMERCE
794
19
Contents
[ in t r o d u c t io n TO E-COMMERCE 40
Learning Objectives 40
Pinterest Attracts Global Interest 41
1.1 E-commerce: The Revolution Is fu st B eginning 45
The First 30 Seconds 47
What is E-commerce? 50
The Difference Between E-commerce and E-business 51
Why Study E-commerce? 52
Eight Unique Features of E-commerce Technology 52
Ubiquity 54
Global Reach 54
Universal Standards 54
Richness 55
Interactivity 55
Information Density 55
Personalization/Customization 56
Social Technology: User Content Generation and Social Networking 56

Web 2.0: Play My Version 57
Types of E-commerce 59
Business-to-Consumer (B2C) E-commerce 60
Busincss-to-Business (B2B) E-commerce 60
Consumer-to-Consumer (C2C) E-commerce 60
Social E-commerce 60
Mobile E-commerce (M-commerce) 61
Local E-commerce 61
Growth of the Internet and the Web 61
Origins and Growth of E-commerce 62
21
Insight on Technology: Spider Webs, Bow Ties, Scale-free Networks, and the Deep
Web 63
Technology and E-commerce in Perspective 66
Potential Limitations on the Groxvth of B2C E-commerce 67
1.2 E-commerce: A B rief History 69
E-commerce 1995-2000: Invention 69
E-commerce 2001-2006: Consolidation 73
E-commerce 2007-Present: Reinvention 73
Assessing E-commerce: Successes, Surprises, and Failures 74
Insigh t on Business: Is the Party Already Over? 75
Predictions for the Future: More Surprises 78
1.3 Understanding E-commerce: O rganizing Them es 82
Technology: Infrastructure 82
Business: Basic Concepts 84
Society: Timing the Juggernaut 84
Insight on Society: Facebook and the Age of Privacy 85
Academic Disciplines Concerned with E-commerce 88
Technical Approaches 88
Behavioral Approaches 88

1.4 Case Study: The Pirate Bay: The World's Most Resilient C opyright
Infringer? 89
1.5 Review 93
Key Concepts 93
Questions 96
Projects 97
22 | Contents
E-COM M ERCE INFRASTRUCTURE: THE INTERNET, WEB, AND MOBILE PLATFORM 98
Learning Objectives 98
Google Glass: Augment My Reality 99
2.1 The Internet: Technology Background 102
The Evolution of the Internet: 1961—The Present 104
The Internet: Key Technology Concepts 108
Packet Switching 108
Transmission Control Protocol/Internet Protocol (TCP/IP) 110
IP Addresses 110
Domain Names, DNS, and URLs 112
Client/Server Computing 113
The New Client: The Mobile Platform 115
The Internet "Cloud Computing” Model: Software and Hardware as a
Service 116
Other Internet Protocols and Utility Programs 117
Internet Protocols: HTTP. E-mail Protocols, FTP, Telnet, and SSL/TLS 117
Utility Programs: Ping and Tracert 118
The Internet Today 119
The Internet Backbone 121
Internet Exchange Points 122
Campus Area Networks 122
Internet Service Providers 124
Intranets and Extranets 126

Who Governs the Internet? 126
The Future Internet Infrastructure 128
Limitations of the Current Internet 128
Insight on Society: Government Regulation and Surveillance of the
Internet 129
The Internet2® Project 132
The First Mile and the Last Mile 134
Fiber Optics and the Bandwidth Explosion in the First Mile 134
The Last Mile: Mobile Internet Access 135
The Future Internet 140
Latency Solutions 141
Guaranteed Service Levels and Lower Error Rates 142
Declining Costs 142
The Internet of Things 142
The Web 142
Hypertext 144
Markup Languages 146
HyperText Markup Language (HTML) 146
extensible Markup Language (XML) 147
Insight on Technology: Is HTML5 Ready for Prime Time? 148
Web Servers and Clients 151
Web Browsers 153
The In tern et an d the Web: Features a nd Services 153
E-mail 153
Instant Messaging 154
Contents | 23
24
Contents
Search Engines 154
Online Forums and Chat 157

Streaming Media 158
Cookies 158
Web 2.0 Features and Services 159
Online Social Networks 159
Blogs 159
Really Simple Syndication (RSS) 160
Podcasting 160
Wikis 160
Music and Video Services 161
Internet Telephony 161
Video Conferencing and Telepresence 162
Online Software and Web Services: Web Apps, Widgets, and Gadgets 163
Intelligent Personal Assistants 163
2.6 Mobile Apps: The Next Big Thing Is Here 164
Platforms for Mobile Application Development 165
App Marketplaces 165
Insight on Business: Apps for Everything: The App Ecosystem 166
2.7 Case Study: A ka m ai Technologies: A ttem pting to Keep Supply A head o f
D em and 168
2.8 Review 172
Key Concepts 172
Questions 176
Projects 177
BUILDING AN E-COMMERCE PRESENCE: WEB SITES, MOBILE SITES, AND APPS 178
Learning Objectives 178
Tommy Hilfiger Replatforms for Global Success 179
3.1 Im agine Your E-commerce Presence 182
What's the Idea? (The Visioning Process) 182
Where’s the Monej': Business and Revenue Model 183
Who and Where is the Target Audience 183

What is the Ballpark? Characterize the Marketplace 184
Where’s the Content Coming From? 185
Contents
25
Know Yourself: Conduct a SWOT Analysis 185
Develop an E-commerce Presence Map 186
Develop a Timeline: Milestones 187
How Much Will This Cost? 187
3.2 B uilding an E-commerce Presence: A System atic Approach 188
Pieces of the Site-building Puzzle 189
Planning: The Systems Development Life Cycle 190
Systems Analysis/Planning: Identify Business Objectives, System Functionality,
and Information Requirements 190
System Design: Hardware and Software Platforms 192
Building the System: In-house versus Outsourcing 192
Build Your Own versus Outsourcing 192
Host Your Own versus Outsourcing 196
Insight on Business: Curly Hair and Appillionaires 197
Testing the System 200
Implementation and Maintenance 200
Factors in Optimizing Wrcb Site Performance 201
3.3 Choosing Software and Hardware 202
Simple versus Multi-tiered Web Site Architecture 202
WTeb Server Software 204
Site Management Tools 204
Dynamic Page Generation Tools 205
Application Servers 207
E-commerce Merchant Server Software Functionality 209
Online Catalog 209
Shopping Cart 209

Credit Card Processing 209
Merchant Server Software Packages (E-commerce Suites) 209
Choosing an E-commerce Suite 210
Building Your Own E-commerce Site: Wreb Services and Open Source
Options 211
The Hardware Platform 212
Right-Sizing Your Hardware Platform: The Demand Side 213
Right-sizing Your Hardware Platform: The Supply Side 214
3.4 O ther E-Commerce Site Tbols 217
Wreb Site Design: Basic Business Considerations 217
Tools for Web Site Optimization 218
Tools for Interactiv e and Active Content 219
Bling for Your Blog: Web 2.0 Design Elements 220